Report recommends ‘enhanced scrutiny’ for Hong Kong listings

The Hong Kong Securities and Futures Commission’s (SFC) annual review of the Exchange (19-page / 448 KB PDF) said the Exchange’s operational procedures and decision-making processes continue to be “appropriate to enable the Exchange to discharge its statutory obligations to maintain an orderly, informed and fair market”.

However, the SFC recommended that the Exchange boost scrutiny in terms of applications to transfer listings from the Exchange’s Growth Enterprise Market (GEM) listings to the Main Board, which is designed for larger, established companies.

The SFC said: “The policy intention of having a reduced level of scrutiny for GEM transfer applicants is predicated on the fact that the applicants are known to the Exchange and have been in compliance with a regime that is very similar to that of the Main Board. However, in certain circumstances... it would be appropriate to adopt a higher level of scrutiny and a more probing approach in its vetting process.”

Hong Kong’s government said it welcomed the report’s recommendations, which it said “promote higher standards in the vetting and processing of applications relating to various listing matters and compliance with the listing rules”.

The SFC said it sent a questionnaire on the SEHK’s performance to 179 listing committee members and market practitioners and received 72 responses, a response rate of 40.2%. Respondents were asked to “rate the performance of the SEHK and each of the operational departments in the listing department in various key areas on a scale of 1 to 5 with ‘5’ being wholly satisfied”.

The SFC said: “Overall, there is no significant change in the respondents’ view of the SEHK’s performance. The average overall score for the 2014 survey is 4.0 compared with 3.8 in 2013. Respondents are generally satisfied with the efficiency and fairness of the SEHK in its vetting process.”

In terms of listing application of debts offered to professional investors only, the SFC recommended that the exchange should “establish procedures to monitor compliance with the continuing disclosure obligations in relation to filing of annual and interim reports”.

According to the SFC, the IPO Transactions Department in the Listing Division of Hong Kong Exchanges and Clearing Limited vetted 227 listing applications in 2013, an increase of 22 listing applications, or 10.7%, from 2012. The average time between receipt of application and issue of first comment letter in 2013 was 20 days, compared to 21 days in 2012. The percentage of applicants reviewed by the listing committee within 120 days was 54% in 2013 compared to 33% in 2012.

The SFC’s annual Fund Management Activities Survey, published last July, said contributions from overseas investors in 2013 reached an “historic high” of HKD 11.38tn ($1.4tn), 72% of the total fund management business.

According to the SFC, the survey indicated that Hong Kong “continued to be a preferred platform for international investors to invest in Asia”.